Indiglow Chapstars which sells books to college bookstores and individuals uses activity-based costing and activity-based management. The following information is available for the company's three cost pools.
\(\begin{array} { | l | l | l | l | l | }
\hline \underline {\text { Activity }} & \begin{array} { l }
\underline {\text { Cost }} \
\underline {\text { Driver }}
\end{array} & \begin{array} { l }
\text { Cost- } \
\text { Driver } \
\underline {\text { Quantity }}
\end{array} & \begin{array} { l }
\text { Percent of Cost- } \
\text { Driver Activity } \
\text { for } \
\text { Bookstore } \
\underline {\text { Transactions }}
\end{array} & \begin{array} { l }
\text { Percent of Cost- } \
\text { Driver Activity } \
\text { for Transactions } \
\underline {\text { to Individuals }}
\end{array} \
\hline \begin{array} { l }
\text { Incoming } \
\text { receipts }
\end{array} & \begin{array} { l }
\text { Number } \
\text { of } \
\text { purchase } \
\text { orders }
\end{array} & 5,000 & 50 \% & \
\hline \text { Warehousing } & \begin{array} { l }
\text { Number } \
\text { of } \
\text { inventory } \
\text { moves }
\end{array} & 8,500 & 80 & 90 \% \
\hline \begin{array} { l }
\text { Outgoing } \
\text { shipments }
\end{array} & \begin{array} { l }
\text { Number } \
\text { of } \
\text { shipments }
\end{array} & 20,000 & 40 & 30 \
\hline
\end{array}\) Bookstore sales totaled $9,000,000, and sales to individuals amounted to $3,400,000. Costs for the three activities were: Incoming receipts, $500,000; warehousing, $620,000; and outgoing shipments, $620,000. A review of the company's activities found various inefficiencies with respect to the warehousing of textbooks (acquired for eventual sale to bookstores) and outgoing shipments to individuals. These inefficiencies resulted in an extra 600 moves and 800 shipments, respectively.
Required:
A. What is a non-value-added activity?
B. How much did non-value-added activities cost Indiglow Chapstars this past year?
C. Which of the two markets-sales to bookstores or sales to individuals-resulted in lower overall costs for incoming receipts, warehousing, and outgoing shipments? Evaluate these costs in both absolute dollars and as a percentage of sales. In addition, present a possible explanation for your results. Note: Exclude costs that arose from inefficient operations.

Question

Indiglow Chapstars which sells books to college bookstores and individuals uses activity-based costing and activity-based management. The following information is available for the company's three cost pools.
 \(\begin{array} { | l | l | l | l | l | } 
\hline \underline {\text { Activity }} & \begin{array} { l } 
\underline {\text { Cost }} \
\underline {\text { Driver }}
\end{array} & \begin{array} { l } 
\text { Cost- } \
\text { Driver } \
\underline {\text { Quantity }}
\end{array} & \begin{array} { l } 
\text { Percent of Cost- } \
\text { Driver Activity } \
\text { for } \
\text { Bookstore } \
\underline {\text { Transactions }}
\end{array} & \begin{array} { l } 
\text { Percent of Cost- } \
\text { Driver Activity } \
\text { for Transactions } \
\underline {\text { to Individuals }}
\end{array} \
\hline \begin{array} { l } 
\text { Incoming } \
\text { receipts }
\end{array} & \begin{array} { l } 
\text { Number } \
\text { of } \
\text { purchase } \
\text { orders }
\end{array} & 5,000 & 50 \% & \
\hline \text { Warehousing } & \begin{array} { l } 
\text { Number } \
\text { of } \
\text { inventory } \
\text { moves }
\end{array} & 8,500 & 80 & 90 \% \
\hline \begin{array} { l } 
\text { Outgoing } \
\text { shipments }
\end{array} & \begin{array} { l } 
\text { Number } \
\text { of } \
\text { shipments }
\end{array} & 20,000 & 40 & 30 \
\hline
\end{array}\) Bookstore sales totaled $9,000,000, and sales to individuals amounted to $3,400,000. Costs for the three activities were: Incoming receipts, $500,000; warehousing, $620,000; and outgoing shipments, $620,000. A review of the company's activities found various inefficiencies with respect to the warehousing of textbooks (acquired for eventual sale to bookstores) and outgoing shipments to individuals. These inefficiencies resulted in an extra 600 moves and 800 shipments, respectively.
Required:
A. What is a non-value-added activity?
B. How much did non-value-added activities cost Indiglow Chapstars this past year?
C. Which of the two markets-sales to bookstores or sales to individuals-resulted in lower overall costs for incoming receipts, warehousing, and outgoing shipments? Evaluate these costs in both absolute dollars and as a percentage of sales. In addition, present a possible explanation for your results. Note: Exclude costs that arose from inefficient operations.

Quizplus · Accepted Answer

The Answer of Indiglow Chapstars which sells books to college bookstores and individuals uses activity-based costing and activity-based management. The following information is available for the company's three cost pools.
 \(\begin{array} { | l | l | l | l | l | } 
\hline \underline {\text { Activity }} & \begin{array} { l } 
\underline {\text { Cost }} \
\underline {\text { Driver }}
\end{array} & \begin{array} { l } 
\text { Cost- } \
\text { Driver } \
\underline {\text { Quantity }}
\end{array} & \begin{array} { l } 
\text { Percent of Cost- } \
\text { Driver Activity } \
\text { for } \
\text { Bookstore } \
\underline {\text { Transactions }}
\end{array} & \begin{array} { l } 
\text { Percent of Cost- } \
\text { Driver Activity } \
\text { for Transactions } \
\underline {\text { to Individuals }}
\end{array} \
\hline \begin{array} { l } 
\text { Incoming } \
\text { receipts }
\end{array} & \begin{array} { l } 
\text { Number } \
\text { of } \
\text { purchase } \
\text { orders }
\end{array} & 5,000 & 50 \% & \
\hline \text { Warehousing } & \begin{array} { l } 
\text { Number } \
\text { of } \
\text { inventory } \
\text { moves }
\end{array} & 8,500 & 80 & 90 \% \
\hline \begin{array} { l } 
\text { Outgoing } \
\text { shipments }
\end{array} & \begin{array} { l } 
\text { Number } \
\text { of } \
\text { shipments }
\end{array} & 20,000 & 40 & 30 \
\hline
\end{array}\) Bookstore sales totaled $9,000,000, and sales to individuals amounted to $3,400,000. Costs for the three activities were: Incoming receipts, $500,000; warehousing, $620,000; and outgoing shipments, $620,000. A review of the company's activities found various inefficiencies with respect to the warehousing of textbooks (acquired for eventual sale to bookstores) and outgoing shipments to individuals. These inefficiencies resulted in an extra 600 moves and 800 shipments, respectively.
Required:
A. What is a non-value-added activity?
B. How much did non-value-added activities cost Indiglow Chapstars this past year?
C. Which of the two markets-sales to bookstores or sales to individuals-resulted in lower overall costs for incoming receipts, warehousing, and outgoing shipments? Evaluate these costs in both absolute dollars and as a percentage of sales. In addition, present a possible explanation for your results. Note: Exclude costs that arose from inefficient operations.

Indiglow Chapstars Which Sells Books to College Bookstores and Individuals